How To Bounce A Dead Cat

You Goose It, Of Course!

So, your stock market is heading south for the summer and you need to lift it north? No problem. Just watch the following video to see how to do it right.

Karl Denninger narrates as we watch our very own SPX index manipulated higher over the night of July4th-5th.

As an aside, I found nothing in the new finance reform that would correct this kind of crap. Then again, it is already against the law. Like Denninger is often saying: Where are the cops?

(edit: Look HERE for background info on the title of this post.)

Bad Cars

How Bad Does It Have To Get?

That’s what Dylan asks, and I’d like to have that answer myself.

Visit for breaking news, world news, and news about the economy

It will be interesting to see how this all works itself out, considering how firmly ensconced is the Goldman Sachs influence over our federal government.

$iFigures (

That’s Worth A Dollar

Except when it isn’t. Which it almost never is.

You see, when the Fed creates a dollar, it doesn’t even exist until somebody, somewhere borrows that dollar. Then a bank writes the loan, creating the dollar in question. Immediately the dollar is worth more than 100 pennies, due to the interest being generated by the loan. If the loan has a 5% interest rate, then each dollar in the loan is worth 105 pennies (to the economy).

But it doesn’t stop there. That dollar is left as a tip on a restaurant table and is spent by someone else, perhaps to pay a bill or buy some drugs. Then whoever owns the dollar spends it again and so on, on down the line until the dollar is eventually destroyed for one reason or another.

Generally speaking, a healthy economy’s dollars will always be worth more than 100 pennies, because in a healthy economy that dollar moves around, being used over and over by different folks. That’s called velocity.

Deflation occurs when the value of a dollar added to the economy produces less than a dollar’s worth of wealth. It seems impossible for this to occur, but it is indeed possible and is one of the things the Federal Reserve Bank tracks very carefully. Below is their chart of M1, the multiplier effect of a dollar in the US economy. (As an aside, notice when the M1 started it’s downward journey? That’s the effect of one man: Alan Greenspan.)

When M1 drops below 1, for every dollar added into the economy, we lose a few cents.
When M1 drops below 1, for every dollar added into the economy, we lose a few cents.

M1 can decline for many reasons, the most obvious one being too much debt in the system. When there’s too much debt, loans get scarce. Without loans, those ‘billions of dollars’ in stimulus don’t exist yet, and so those dollars cannot be spent by all those folks who would have been spending it.

So money gets more scarce, and the same folks who just a few years before were eating out every night are starting to buy dried beans in bulk. Instead of a latte they drive past Starbucks sipping on the travel cup they brought from home. Whether they’re hoarding their cash or just don’t have it anymore doesn’t matter. The fact that matters is that the cash is not being moved around. The velocity has ground to a halt.

Double Dive

Same thing happened a long time ago. There was a time in US history called The Roaring 20s – remember that? The movies all paint it up to be a time of unbridled economic prosperity, but the truth of it is slightly different.

What actually happened was that the economy took a dive between 1917 and 1920, and the Federal Reserve, then only 7 years old, opened the floodgates to the money supply. They dropped interest rates to practically nothing and credit skyrocketed. Similar to the easy credit so rampant over the past 20 years or so, by 1929 all you needed was a non-verified signature and the loan was yours.

We know how that turned out. The market dived in 1929 and then dived again in 1933.

The chart below shows the economic supercycle for the US over the past 100 years or so. The parallels between the 1920s-1930s and now is uncanny. Noting that the cycle touches the bottom of the chart only twice (roughly 1920 and 1981), and trying to account for the lengthening of the time spans between intermediate reversals (real recessions), it still seems to me that we should’ve crashed much worse after 1999.

See the Roaring 20s? That was all excessive debt building up in the system. Now look at 1981...


That we didn’t suffer a worse crash in 1999 is most likely the result of actions by the Fed. They jumped straight into the ‘exceptionally low” interest rate scheme and we’ve been there ever since. In the early part of the last decade(2002, I think) Greenspan stood on a stage with Bernanke and announced that the Fed’s goal was to “blow a bubble in housing”.

Well, they did that and more. To blow the bubble in housing they had to blow a bubble in credit, and when the the credit bubble burst, it took the housing bubble with it. And why did the credit bubble burst? Because fraud was inherent, built right into the bubble. Look at the facts: AIG, Lehman, Goldman, BofA.

You might agree with what they’ve done. You may believe, like they do, that the mathematics behind finance and economics can be controlled.

You may, indeed, be captive to such hubris.

Just remember one thing. What goes up, does indeed come down.

Unless it goes up with a velocity strong enough to overcome the natural forces of nature. And then it’s gone.

Citibank Risk 4 – Demand Deposit Accounts No More

How to make a fool of yourself with a banana s...
Image by purplemattfish via Flickr

April Fools?

Check out this mess over at Seeking Alpha (my emphasis):

Seen on a recent Citibank (C) statement: “Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change.”


I called Citi about it and they said the warning applies only to customers in Texas and that the notification had been mistakenly included on statements nationwide. Whatever the explanation, it doesn’t exactly inspire confidence in Citi. I’ve got nothing against Citi as a general matter — I have friends who work there, and know some account holders who are generally satisfied customers. But it’s hard to believe a bank would be sending out a notice like that on its statements.

A Citibank rep responded in the comments:

Received by email:
I saw your post on Citibank and wanted to get you some additional information. At issue is Reg D, which requires that in order for a NOW account to be eligible to earn interest or receive promotions, a bank must reserve the right to require seven days advance notice before permitting a withdrawal.

When Citibank moved to unlimited FDIC coverage in 2009, we had to reclassify many checking accounts to allow for immediate withdrawals in order to ensure all customers qualified for the additional coverage. When we moved back to standard FDIC coverage with most major banks in 2010, Citibank decided to reclassify those accounts back to make them eligible again for promotional incentives. To do so, Federal Reserve Reg D requires these accounts, called NOW accounts, to reserve the right to require a 7-day notice of withdrawal. We recently communicated this technical requirement to our customers. However, we have never exercised this right and have no plans to do so in the future.

Robert Julavits
Citi Public Affairs

Regular checking accounts are DDA accounts, normally. That means “Demand Deposit Account“. Simply explained, a DDA means that the bank acts as a custodian of your money. Your money in a DDA is NOT there to be loaned out to others. The money is supposed to be there at the exact time you demand it.

There is a type of “checking account” that is not DDA – it’s called a NOW account (Negotiable Order of Withdrawal) – which normally may require some amount of notice to the bank prior to withdrawal. These accounts generally offer some benefit, such as the ability for your cash to earn interest, in exchange for the stricter requirements.

Citi Lied

When I first read about this new Citibank risk, I took them at their word, that it was a simple mistake. Then I found this:

You may need to click the image to read the text. Look at the highlighted text. Especially read the last highlighted item.

“We reserve the right to require seven (7) days advance notice before permitting a withdrawal from all checking, savings and money market accounts.”

In essence, they’re saying that there are no DDA accounts available at Citi, period. At any point in time, they can simply deny your check or refuse to hand over your cash. This makes the response by Robert Julavits look like so much steaming crap in a field of green. Denninger explains it well (emphasis in original):

Now most banks will not allow you to walk in and demand $50,000 in cash at any instant, mostly because they don’t have it, or if they do have it allowing that would severely deplete their cash amount on hand and they would not be able to transact routine amounts for other people. After all, it takes time (even if only a few hours) to order up an armored truck full of $100s and $20s.

But “withdraw” is not limited to cash.

You can get a counter (bank) check for the entire balance, you can write a check on your account (and give it to someone or deposit it somewhere else) and you can wire or ACH money in or out of the account. All are “withdrawals.”

“NOW” (negotiable order of withdrawal) accounts are a different sort of animal. Those pay interest, and on those accounts the bank reserves the right (and always has) to require notice. Same with saving-linked sweeps (which, by the way, is what Alan Greenspan wildly expanded the authorization for early in his tenure as Fed Chairman, essentially destroying bank reserve requirements as this was instantaneously gamed to reduce actual held reserves almost to zero.)

What this “quiet” little change means is that Citibank has changed the character of all of its checking accounts. They no longer offer a “DDA” account, whether they did before or not.

The importance of this cannot be overstated. Without a “DDA” account the bank could at its sole discretion dishonor any check at any time, thereby hitting you with an overdraft fee as you didn’t give them the requisite seven days notice. It could also prevent you from removing your funds to a more appropriate (for you) institution for that seven days, entirely at their whim and sole discretion.

ALL time deposits (savings accounts included, which have always contained this requirement) effectively are a loan of funds from you to the bank. That is, you don’t “deposit” money there, you loan it to the bank which then charges other people to borrow it. This relationship isn’t taught in our Goebbels Government Education System (not even in college!) but it is nonetheless true.

However, essentially all banks have maintained one type of account – a Demand Deposit Account – which in fact operates differently. A DDA account is an appointment of the bank as a custodian of your funds, not as a borrower of your funds. Said account never pays interest (per Federal Reserve rules – and common sense) yet it allows immediate, unrestricted access to your funds because you are not lending them to the bank, you are appointing them as a custodian of them.

DDA accounts are essential for the ordinary flow of commerce. There must be an option available to consumers and businesses alike in which they can place custody of funds they may need, up to the entire balance of that account, at any point in time without prior notice. Without this ability you are literally at the mercy of the financial institution in question, which can cause you to incur hideous “bounced check” and other similar charges as well as potentially exposing you to criminal liability for “uttering” (writing bad checks.)

This is NOT a trivial change in terms. I would never do business with an institution for my business or personal checking accounts that did not offer a true demand account, and you should not either. This sort of change is outrageously destructive to your rights as the funds you have on deposit in a checking account are not intended to be loaned to the bank to do with as they wish, but rather to be held for your immediate (if necessary or desired) use.

Do you know what kind of checking account you have at your current bank or credit union? Here’s a quick somewhat reliable test: Ask yourself one question – does my checking account have interest applied to it? If you are accruing interest on the funds in your account, then you do not have a DDA account. DDA accounts, per federal law, cannot accrue interest.

Maybe you think that you need that interest? Wow, how much do you have in that checking account anyway? And if interest is your thing, what is your cash doing in a checking account anyway? Face it, for the few dollars per year you get in interest, you’re allowing someone else ultimate control over your cash. I’d be willing to bet that one bounced check charge would wipe all that interest away.

And with a policy like the Citibank policy, that could happen even if you have funds in the account. Check yourself, check your bank. This is, after all, your money.

For more on CitiRisk at Wordout:
The Citibank Risk
More Citibank Risk
Citibank Risk 3 – Another WTF Bailout

Commercial Real Estate and Tricks And Traps

Houses Are Only One Kind Of Real Estate

There are also shopping malls, office buildings, stores and shops of all sizes. From the looks of things, by the end of the year more than 50% of those with loans will be underwater. From the February COP’s report (emphasis mine):

The Congressional Oversight Panel’s February oversight report, “Commercial Real Estate Losses and the Risk to Financial Stability,” expresses concern that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks. Commercial real estate loans made over the last decade – including retail properties, office space, industrial facilities, hotels and apartments – totaling $1.4 trillion will require refinancing in 2011 through 2014. Nearly half are at present “underwater,” meaning the borrower owes more on the loan than the underlying property is worth. While these problems have no single cause, the loans most likely to fail are those made at the height of the real estate bubble.

The Panel found that “a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American.” When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities. Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery and extend an already painful recession.

And from the Executive Summary of that report:

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the
end of their terms. Nearly half are at present underwater – that is, the borrower owes more
than the underlying property is currently worth. Commercial property values have fallen more
than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from
eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which
have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful
downward pressure on the value of commercial properties.

Elizabeth Warren chairs the Congressional Oversight Panel. Below is a short piece of interview from CNBC.

Tricks And Traps

“For years, Wall Street CEOs have thrown away customer trust like so much worthless trash.

Banks and brokers have sold deceptive mortgages for more than a decade. Financial wizards made billions by packaging and repackaging those loans into securities. And federal regulators played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families. When they weren’t selling deceptive mortgages, Wall Street invented new credit card tricks and clever overdraft fees.


So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and-bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected ‘every five to seven years.’

He is wrong.”

~Elizabeth Warren, stating the case for a new Consumer Financial Protection Agency in the Wall Street Journal

Ben Bernanke – In His Own Words

From the description over at YouTube.

This video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It’s a compilation of statements he’s made from 2005-2007 that will have you 100% certain America is doomed if we continue to value what this moron says.

And a comment from the YouTube viewer toppermost1:

Is he an idiot or is he wilfully obtuse? Goldman Sachs and JP Morgan have done alright by Uncle Ben. I think he knows exactly what he’s doing – leech main street dry and give it all to his wall street buddies. Just like Bush’s administration were full of people that were invested in oil, defence and construction - and hence profited from the Iraq war, Obama’s administration is full of wall street people – who have profited from the cheap fed money and the bailouts.

Thanks to Barry over at TheBigPicture.

The Definition of Deflation, In Italics

Seal of the United States Federal Reserve Syst...Image via Wikipedia

Don’t Use The ‘D’ Word

Down below you’ll see the press release from the Fed.

Predictably, they avoid the use of the ‘D’ word (D as in DEFLATION) like it had cooties or something. I guess they don’t want to scare us.

Strange thing is, I’m more leery about folks with that much power who are afraid to use the correct words when telling us what they’re doing and why.

You know – liars in power.

In any case, here’s what the jerks are saying now:

Federal Reserve Press Release

Release Date: March 18, 2009

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of evolving financial and economic developments.


It’s hard to write while I’m taking this medication, so allow TheFly to tell you pretty much exactly how I’m viewing this:

…As a result, the dollar is getting murdered. Watch it via UUP. And, treasuries are sprinting higher, as big moneyflees for safety. The initial market reaction is bullish. However, should treasuries continue to melt up like this, coupled with a crashing dollar, the market will get nailed to a crucifix.

If you are short stock here, beware of a blow off top, as the market presses your pain threshold.

The Fed cannot continue the reckless path of monetizing everything. This is NOT bullish for the markets. Do not be suckered into this rally.

However, if reinflation is the current theme, commodity related stocks may bounce here. The only commodity related stock I am comfortable with here is gold, via GLD or DGP.

and if you need more, Jesse adds the rest of it:

What was particularly repugnant was the co-ordinated actions in the market ahead of this announcement. This included a major bear raid on the precious metals, and the panic-covering of the financial shares before the official announcement. The cure of the crisis ought not to be an occasion for looting, fraud, deception, and personal enrichments by insiders who in many cases caused the problems which are facing today.

The US government is engaging in the same artificial tactics that lead to the tech bubble and the housing bubble. They are artificial because they are not accompanied by systemic change and meaningful reform. We are shooting the patient with morphine so they can go back to work without treating the disease.

The next phase of this financial credit crisis may be take down the US Bond and the dollar. That is what is known as a financial heart attack.

Discalimer: As you all should know by now, I am not recommending any buys or sells. My investing philosophy doesn’t allow me to play in rigged markets.

On a related note, gun sales are up.

From one moment to the next, I am still Jon.

Image 18

Record Declines In Household Wealth

clothing!  yes!  that's what i forgot!Image by orionoir via Flickr

Flow Of Funds Report

Each fiscal quarter the Federal Reserve releases a report with the title “Flow of Funds Accounts of the United States”. On the 1st page of the current report we find the following:

Household net worth—the difference between
the value of assets and liabilities—was an estimated
$51.5 trillion at the end of the fourth quarter of 2008,
$5.1 trillion dollars less than in the preceding quarter.
For 2008 as a whole, household net worth fell $11.2 trillion.

This tells us that 1)generally, household net worth dropped by about 20% in 2008 and 2) half of THAT was lost in just the last three months of 2008. In a memo sent to clients, JPMorgan estimates consumers have lost another $2.5 Trillion dollars since the new year began.

Thanks to John Jansen at Across The Curve:

Here is an interesting excerpt from a note JPMorgan economists sent to clients on the Federal Reserve Flow of Funds data for Q4. It describes in gory detail the loss of wealth in the household sector.

‘The showstopper in today’s report was the larger-than-expected $5.1 trillion decline in household net worth. The 9% decline in wealth was easily the largest on record and pushes the much-watched wealth-to-income ratio for the household sector down to 4.83, the lowest since 95Q1. Since peaking in the second quarter of 2007, household wealth is down almost $13 trillion. Given where the S&P500 is now (around 740) and recent house price data, we estimate consumers have lost about another $2.5 trillion in the first quarter of the year. Household liabilities were down 2.1% on the quarter, reflecting declines in both mortgage credit and consumer credit. Homeowners’ equity in real estate as a percent of real estate values slipped to 43%, three years ago this number stood at 58.5%.’

Enjoy the rally while it lasts folks. The bottom is not in yet.

I am Jon, sliding down the slippery slope with you, and you, and you and you…

Image 2

Liquidity Trap

Mac in a BottleImage by Mac(3) via Flickr

Economic Tightrope

Thought I’d throw a link and a sample of what you’ll find when you click it.

Written by Edward Hugh, it’s a great piece (well-linked and referenced with a few interesting charts) about the perils we face if we don’t walk this economic tightrope just right.


From Fistful Of Euros

Basically the risk of entering a liquidity trap is heightened when interest rates are at or near zero, and domestic demand contracts with sufficient force to produce a substantial and ongoing fall in prices, since the implicit rate of return on simply holding cash is not that different from that obtained by holding short term government bonds, especially when transaction costs are taken into account. (If prices drop at a 2% annual rate, for example, this gives you an implicit rate of return of 2% on bank notes).

Now we need to be careful here, since while monetary policy in one economy after another is gradually coming to rest around the zero bound, by and large price inflation has not (yet) fallen below zero (or not for a sufficient length of time), and while it is evident that a number of countries face the imminent risk of this happening (Germany, Spain, Ireland, the UK, Japan and the United States most notably) we are not there yet, and the central banks are working furiously (well I’m not too sure about the ECB) to unblock the credit crunch before the associated contraction in economic activity produces the sort of price deflation which increases the risk of one country after another getting stuck in some kind of liquidity trap.


The core of Krugman’s analysis is the idea that the equilibrium real interest rate – that is, the real rate that would match saving and investment – and thus bring output back up towards its capacity level – turns negative in a liquidity trap. Thus we can have an economy which is struggling to find its equilibrium point but which is unable to do so since it effectively cannot generate the rate of interest which would make this possible.

But how can the equilibrium real interest rate be and remain negative? Because, argues Krugman, poor long-run growth prospects (a debt deflationary environment) make investment demand so low that a negative short-term real interest rate would be needed to match saving and investment. Given a nominal interest rate floor of zero a positive expected rate of inflation becomes necessary to generate negative real interest rates, which will stimulate aggregate demand and restore full employment.

Equally importantly, injections of liquidity by the central bank which raise base money (or bank reserves) turn out to be pretty ineffective in raising the growth rate of broader money aggregates. Krugman shows that Japan’s monetary base grew 25% from 1994 to 1997, but that the broader monetary aggregate (M2 + Certificates of Deposit) grew only 11%, and bank credit didn’t grow at all. And more recent statistics indicated that “money hoarding” continued to be evident in 1998-1999, as an expansion of the monetary base in the range of 8% to 10% resulted in only about a 3% growth in M2 + CDs. Posterior Bank of Japan data show that between March 2001 and May 2004 while Japanese bank reserves grew by 800% the monetary base (which is bank reserves plus cash in circulation) only increased by 67%.

Click that link up there and read it all.

I am Jon. Watch your step.

Image 4

Keeping Tabs

Where Is That Confounded TARP?

It’s a bit out of date, but it gives us an idea of where most of the original $700 billion went. I was surprised at some of the bank names on here… can you find the name of your bank?

Keeping Tabs Small

Click the image for a larger view.

I am Jon, still keeping tabs.

Image 7

Fed Announces New Bank Of America Bailout

From The Fed

For immediate release
January 16, 2009
Treasury, Federal Reserve, and the FDIC Provide Assistance to Bank of America

The U.S. government entered into an agreement today with Bank of America to provide a package of guarantees, liquidity access, and capital as part of its commitment to support financial market stability.

Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch. The assets will remain on Bank of America’s balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Bank of America from the Troubled Asset Relief Program in exchange for preferred stock with an 8 percent dividend to the Treasury. Bank of America will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program.

Treasury exercised this funding authority under the Emergency Economic Stabilization Act’s Troubled Asset Relief Program (TARP). The investment was made under the Targeted Investment Program. The objective of this program is to foster financial market stability and thereby to strengthen the economy and protect American jobs, savings, and retirement security.

Separately, the FDIC board announced that it will soon propose rule changes to its Temporary Liquidity Guarantee Program to extend the maturity of the guarantee from three to up to 10 years where the debt is supported by collateral and the issuance supports new consumer lending.

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy. As was stated in November when the first transaction under the Targeted Investment Program was announced, the U.S. government will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks.

Term Sheet(pdf)

And the band plays on…

I am Jon… and this song sucks.

Image 5

Newstopia On The Reserve Bank

As Barry Says, ‘Brilliant!’

Thanks again to Barry at The Big Picture

Newstopia is into its 3rd season. I don’t know much about them yet, but with reports like this, I’m certain to be watching for more.

Of course, it would be alot easier if their server wasn’t locked.

I am Jon, and that’s the way it is.

Image 6

Dow Jones Adjusted For Inflation

Stocks Shown To Be A Pig In A Poke

Buying a pig in a poke originated from the dark ages practice of selling cats, tied up in bags, to someone who believes they are buying a pig.

What’s this got to do with buying stocks? Well, the Wall Street investment mantra is ‘buy and hold’ for the long term. I’ve personally been instructed as to the validity of this concept, with a broker once showing me, on paper, how over time the stock market returns an average of about 8-12%, usually higher than inflation.

He practically guaranteed I wouldn’t lose wealth if I followed this advice.

But look below at the chart of the DJI since 1925, comparing nominal values to their inflation-adjusted values. The myth of the stock investment should almost immediately become apparent.

corrected dow
Chart courtesy of Dogs Of The Dow

From The Big Picture(emphasis mine):

It is shocking to see the Dow, when corrected for inflation, sitting at the same level in 1995 as in the peak of 1929. That is, when inflation is factored in, the Dow was finally breaking even 65 years after the crash of 1929. With the Fed pumping eye glazing sums of money into the economy to combat the present deflation this inflation corrected chart which includes the deflationary 1930’s may be back to the future.

Take another look at that inflation corrected chart and notice the inflation infested seventies effect on actual market wealth. And then compare it to the standard non-inflation corrected chart for the same period. The standard Wall Street stock market story versus the actual stock market wealth story for that period is a slap in the face now but could be a body blow in a couple of years. It also makes it obvious why the inflationary seventies is when high interest CDs and money markets became popular investments. In other words we are dealing with deflationary risks we have not seen since the 1930’s and possible inflationary risks we have not seen since the 1970’s.

Each time a new bailout is approved, every time a new stimulus package is thrown at us, that creates some future inflation. This is just the way it goes. All that money is being created as debt, not wealth. The debts have to be paid off, and the interest on that debt is what creates the inflation.

The deflation we are going through now will seem like a blessing in many ways. Cheaper food, gas and electricity will make this year feel a little better for us, in some ways. Just remember – what comes after is going to be a real curse on nearly all of us.

I am Jon. Study your history.

Image 19

Propoganda Paulson Spins The Tale

TOKYO - FEBRUARY 09:  G7 finance ministers (fr...Image by Getty Images via DaylifeThe Transfer Of Debt

These guys over to the right are the so-called G7. Those are the guys who are causing this economic mess. If you live in a member country (like I do), these guys literally control your life.

Like it or not, it’s true. They caused the crisis and are presently making it worse on us all by pumping trillions of dollars of debt onto our already unsustainable debt-load.

But they are not actually creating NEW debt. They are just trying (successfully) to transfer all of THEIR debt onto our backs, and the backs of our children.

Let’s see what Treasury Secretary Hank Paulson has said, via The Financial Times(emphasis mine).

In a valedictory interview, Mr Paulson cast the crisis as partly the result of a collective failure to come to terms with the way the rise of emerging markets was reshaping the global financial system. These imbalances – arising from differences in the inclinations of different nations to save and invest – are reflected in large current account deficits and surpluses around the world.

The US Treasury Secretary said that in the years leading up to the crisis, super-abundant savings from fast-growing emerging nations such as China and oil exporters – at a time of low inflation and booming trade and capital flows – put downward pressure on yields and risk spreads everywhere.

This, he said, laid the seeds of a global credit bubble that extended far beyond the US sub-prime mortgage market and has now burst with devastating consequences worldwide.

“Excesses . . . built up for a long time, [with] investors looking for yield, mis-pricing risk,” he said. “It could take different forms. For some of the European banks it was eastern Europe. Spain and the UK were much more like the US with housing being the biggest bubble. With Japan it may be banks continuing to invest in equities.”

Paulson is not exactly lying here, but he is definitely not on solid moral ground. What he calls excesses were simply the aggregate savings of millions of regular folks, just like you and me. What was excessive, was that this was actual wealth, not debt. To the Fed’s mind, nobody should actually possess any wealth.

So allow me to restate what he probably meant to say, if he had decided to say it this way. They found out that folks who were not used to having wealth were actually saving that wealth, instead of converting it to debt (spending it). There was so much of it out there that if you added it together it was as much as they had, and it was growing. This planted the seeds of greed in their minds, and they decided to come up with a way to take that wealth and convert it to nice, friendly debt.

Oh, by the way, Greenspan created the ‘downward pressure’ when he stated (in 2001) that US prime rates would remain low indefinitely. This made our bonds and treasury notes very unattractive. After that, the Fed entered a campaign of lower interest rates which finally culminated in a de facto zero rate.

So, anyway, what do you expect from this guy? But then FT itself makes these two erroneous statements:

This argument – already advanced by a number of economists and largely endorsed by Federal Reserve chairman Ben Bernanke – suggests that the roots of the crisis do not simply lie in failures within the financial system.

It also implies that avoiding crises in future will require global macroeconomic co-operation as well as better financial regulation and risk-management.

So lemmee get this straight: the FT is saying the root causes of this crisis are NOT the way the financial system is managed, and we need a bigger central bank to manage the WORLD economy.

I have to disagree, and wonder deeply about reading this rag anymore. The facts so far plainly show that the financial system is the problem that caused this mess. How can a bigger problem make things any better?

Whatever – It’s 2009 – I’m Calling It What It Is

That’s right. The time for the glove is gone.

Let me say plainly: Ben Bernanke is an asshole. (So is Henry Paulson.) He deserves to be beaten, presented to the world and remain on public display throughout his miserably short lifetime. We could sell ten-dollar tickets and everyone on the planet would buy one, each allowing a single punch to Big Ben, anywhere we want.

Some folks would buy more than one ticket, I am sure. Sure beats the hell out of a lottery.

Modern Bankers – every damned one of them – are the worst sort of folks you’ll ever meet. What they want is to make you indebted to them so they can sit back and have a great life while you struggle to pay them back.

They have never been anything other than parasites. The human race would be better without them. If you think that means we go ‘back to the barter system’, then you just don’t understand economics at all.

Banking has been shown to have never even been able to evolve from barter. The two things have absolutely nothing to do with each other.

The modern-day robber barons are out to steal the accumulated wealth of the world. About 10 years ago they realized that only half the world’s wealth was under their control, and they wanted it all. That’s the ‘super-abundant savings’ Ben was talking about. It was about 36 trillion dollars of wealth, not debt, about equal to the wealth that the bankers controlled.

Savings is wealth. Everything else is debt, even cash and especially investments.

So the great western central bankers decided to do what it took to grab up all that wealth, and convert it to debt, so that the entire planet’s wealth would belong to them, in the process making nearly every person on the planet their servant. That’s the ‘seeds’ of the crisis Ben mentions. The seeds was greed.

These guys are like sharks. They do one thing and they do it better than anybody else doing it. They feed. Usually on us, but they love best the taste of ‘Banker’. So once all that extra wealth had been converted, and they couldn’t feed on us anymore, they turned to each other, wondering who was tasty.

And they began to make bets with each other. Using the same strategies they’d used on us, the predators bet up a pool of more than 500 trillion dollars. That’s more than the GNP of the entire planet for the next 15 years.

Eventually lots of regular folks were involved as their money managers, seeing an easy way to make some profits, invested in these deals. So many deals were traded among so many individuals that the whole thing got twisted up and practically nobody knew who was invested in what anymore.

By the time the Big Guys realized what they’d done it was too late to get out. All of them, at nearly the same moment, realized they were in over their heads, and they wanted out. Goldman Sachs had been selling their own securities short for quite some time, which is why they seemed to come this far a little better than the rest.

When the selling started in earnest, the market dried up immediately, which halted all the selling. You can’t sell when literally nobody wants what you’re selling. So the Big Boys got caught up in their own scam. That 500 trillion dollars worth of bets was worthless.

But they had an ace up their sleeve. They own the government’s, and therefore OUR money supply. Click on that link below to see what I mean. Since all ‘money’ in any nation with a central bank is actually debt, they have a way to transfer all of their debt onto us, in the form of stimulus packages.

Don’t think I’m right? Look at every piece of cash you have. Don’t they all say ‘Federal Reserve Note’? Go to the bank and ask for real ‘money’. You’ll get ‘notes’.

Notes are obligations to pay. Obligations to pay are DEBTS. Plain and simple.

Here in the US, we get taxed whatever is needed for the Federal Reserve to pay out its notes. And, a close reading of the ammendment that supposedly authorizes those taxes shows that it indeed DOES NOT authorize the kinds of ‘income’ taxes we see today. The Supreme Court has never had to review this ammendment’s implementation.

Since the founding of this country, Bankers have wanted to control our money supply. In 1913 The Federal Reserve was created, and they won a major victory over those of us who would control our own wealth. But just 7 years later, the US Treasury was co-opted through The Independent Treasury Act, which turned our Treasury over to a private corporation.

Click that ‘1920’ link in my signature line.

I am Jon, and since 1920 this has been War. (CLICK IT!)

Why The Auto Bailout Really Failed

Marionettes, And Magicians

Do you find yourself scratching your head, trying to understand how Congress decides who gets what in the midst of all this bailout mania? Banks were bailed out, and all they created was the debt that caused the meltdown.

Personally, I wouldn’t own a car made by Ford, Chrysler or GM – even if you gave it to me. I’d find some sucker to sell it to and buy myself a Toyota.

Nevertheless, at least those guys make a real product. From what I see every day, at least some people are buying them.

So what was it that made the Senate decide not to bail THEM out? Who was pulling the strings behind the scenes?

In a nutshell, it was the banks.

From the WSJ via TheAutomaticEarth(emphasis mine):

The key to any magic trick is to focus the audience’s attention away from where the action is actually taking place. That is what Congress did in the failed auto bailout bill. Language in the proposed legislation seemed to uphold the rights of existing car-company creditors while also protecting any taxpayer funds used to prop up Detroit. In reality, the bill raised a chilling prospect for debt investors: that in extreme situations the government could upend the traditional pecking order of the bankruptcy process.

The result could be further instability in credit markets, which the government has been trying to thaw for more than a year. “If someone is thinking of providing a secured loan to another company, they can’t ignore this development,” said Mark Brodsky, head of Aurelius Capital, which focuses on distressed investments. “It introduces a tremendous amount of uncertainty.” Creditors’ rights became an issue in the proposed automotive bailout because the government planned to put its money first in line for repayment in the event of bankruptcy. That seems like a no-brainer for taxpayers. They clearly wouldn’t want to shoulder losses before banks.

But such a move could contravene the way corporate debt structures work and possibly the U.S. Constitution since senior lenders have their debt secured against company assets. In response to opposition from the banks, legislators compromised in the bailout bill originally passed by the House of Representatives, but which appears to have died in the Senate. The new language ostensibly made any government loan subordinate to senior, secured lenders. Problem solved? Not quite. What the government gave with one hand, it took with the other. It also added in some extraordinary protections for any government loans.

These included a provision that, in the case of bankruptcy, the government would be exempt from a legal stay, which freezes creditor claims until the court divides up the assets. It also included language saying the government’s loans couldn’t be haircut, as often happens to debts in bankruptcy. These protections mean that in any bankruptcy, the government “would have a strong blocking position that is going to make them the dominant player,” said Randy Picker, a professor at the University of Chicago Law School. The exemption from a stay in bankruptcy is especially significant, he adds, because it would let the government seize assets when everyone else has to stand put.

In effect, the language creates a new kind of debt and subordinates the senior, secured holders. That is a possible outcome debt investors now have to keep in mind when investing in industries the government may ultimately have to prop up. The financial crisis already has shaken the confidence of debt investors in everything from ratings to asset values on bank balance sheets. If the government wants to get markets working again, the last thing it needs to do is give these already skittish investors yet another reason to worry.’

Talking Heads And Pointing Fingers

The talking heads on the TV and radio are telling you about an email that circulated through the Republican ranks of the Senate. They are telling you that the UAW refused to make concessions, and that this is the reason the auto bailout was finally defeated.

Do not believe it. The UAW is NOT THE REASON for the past 30 years of stagnation in the US auto industry. The UAW is NOT THE REASON Detroit failed to deliver on its promise to design and produce more fuel efficient vehicles that we Americans would want to own. The UAW is NOT THE REASON any of these ‘Big 3’ auto-makers have become insolvent.

I’m not here to tell you ANYTHING good about the UAW, or any other union, for that matter. Whether I like it or not, unions of workers are most likely still a necessary part of corporate America. Nothing I know shows me that our leaders, whether in government or business, have matured enough to be able to unharness themselves from basic greed.

Until that changes, I will grudgingly accept the need for the collective power that comes from unions. Corporate and individual greed makes them indispensable. Still, I wish for something better, something more – considerate.

I’m not holding my breath. But I’m also NOT buying the current spin which points a finger at the unions as the ultimate bad-guy in this farce.

Instead, I have a finger of my own, and I’m pointing it straight up in the air, knuckle-side out, and you can imagine what I’m saying to the government and the management of these haphazardly-run companies.

I am Jon, and I call BULLICUS.

Image 0

Madoff’s Multi-Billion Dollar Ponzi Scheme

Over in the sidebar and at the the bottom of this page, you’ll see the quote:

Sometimes you don’t have to know who They are.
All you need to know is who You are.

I wrote that and I stand by it. But still, every now and then it IS nice to know who THEY are…

The Wonderful and Frightening World of The Fal...Image via Wikipedia

The Wonderful And Frightening World Of The Fall

It’s a scary time for many of us. It seems that the world – the financial part of it, anyway – is falling down around us. Every day it seems, more bad news hits us in the face. Whether it’s unemployment, foreclosure rates, or whatever, there seems to be no end in sight.

We know, in our gut, that this couldn’t have happened by accident. We know, whether we want to admit it or not, that the whole thing will probably blow up to become one of the worst economic events in human history.

We wish, most of us, that we knew exactly who to blame. Even if we can’t exact our vengeance on that person (or those people) we’d still like to know who to curse.

According to a report from Bloomberg, one of the bad guys has just given himself up to authorities:

[Bernard] Madoff ran his investment advisory business from a separate floor of his firm’s office, keeping financial statements “under lock and key,” prosecutors said. Early in December, he told one employee that clients wanted to redeem about $7 billion and that he was struggling to free up the funds, the government said. After he told another staff member Dec. 9 that he wanted to pay annual bonuses before the year’s end, two months early, a pair of senior employees asked to speak with him, prosecutors said.

‘Great Deal of Stress’

They had noticed he had been suffering from a “great deal of stress” and wanted to know what was happening, the U.S. said. When one of them challenged his explanations, Madoff invited them to his Manhattan apartment, saying he “wasn’t sure he would be able to hold it together” if they continued talking at the office, the government said.

While meeting the pair at his home yesterday, Madoff conceded that he was “finished,” that his advisory business is “all just one big lie” and “basically, a giant Ponzi scheme,” the government said. The business had been insolvent for years with losses of about $50 billion, he told the employees, according to the criminal and SEC complaints.

Madoff said he had about $200 million to $300 million left and planned to distribute money to select employees, family and friends before surrendering to authorities in about a week, the government said.

Confessed to FBI

Madoff allegedly confessed to FBI agent Theodore Cacioppi on Dec. 11, saying there was “no innocent explanation,” the SEC said in its complaint. Madoff said it was his fault and he had “paid investors with money that wasn’t there.” He also said he was “insolvent” and he expected to go to jail, it said.

And if you want to read the SEC Press Release:

SEC Charges Bernard L. Madoff for Multi-Billion Dollar Ponzi Scheme

Washington, D.C., Dec. 11, 2008 — The Securities and Exchange Commission today charged Bernard L. Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud for a multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm. The SEC is seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm.

The SEC’s complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme.” The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion.

“We are alleging a massive fraud — both in terms of scope and duration,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “We are moving quickly and decisively to stop the fraud and protect remaining assets for investors, and we are working closely with the criminal authorities to hold Mr. Madoff accountable.”

Andrew M. Calamari, Associate Director of Enforcement in the SEC’s New York Regional Office, added, “Our complaint alleges a stunning fraud that appears to be of epic proportions.”

According to regulatory filings, the Madoff firm had more than $17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing.

Madoff founded the firm in 1960 and has been a prominent member of the securities industry throughout his career. Madoff served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He was also a member of NASDAQ Stock Market’s board of governors and its executive committee and served as chairman of its trading committee.

The complaint charges the defendants with violations of the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. In addition to emergency and interim relief, the SEC seeks a final judgment permanently enjoining the defendants from future violations of the antifraud provisions of the federal securities laws and ordering them to pay financial penalties and disgorgement of ill-gotten gains with prejudgment interest.

The SEC’s investigation is continuing.

The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York.

So there, now you can curse his name. Just remember:

He is NOT the ONLY one who is guilty. May there be more press releases from the SEC in the coming days…

I am Jon, and Madoff is a jackoff.

Image 3

Thanks to Paul at InfectiousGreed. Paul posted an updated piece HERE.

WTF Treasury Notes – A Negative Yield?

An example of combustionImage via WikipediaT-Bills Negative?

Q: When was the last time you ever saw 3-month Treasury Bills yield a NEGATIVE amount?


What amazes me the most is the amount of cash that was willing to be dropped into this hole: $30 Billion. According to Barry (below) the ‘demand was so great even for no return that the government could have sold four times as much’.

Check it out, via Barry at TheBigPicture:

We mentioned this yesterday as it happened, but Treasuries traded down to previously unseen yields. The 3 month T-bill went negative yield for the first time ever.

When was the last time you invested in something that you knew wouldn’t make money?

In the market equivalent of shoveling cash under the mattress, hordes of buyers were so eager on Tuesday to park money in the world’s safest investment, United States government debt, that they agreed to accept a zero percent rate of return.

The news sent a sobering signal: in these troubled economic times, when people have lost vast amounts on stocks, bonds and real estate, making an investment that offers security but no gain is tantamount to coming out ahead. This extremely cautious approach reflects concerns that a global recession could deepen next year, and continue to jeopardize all types of investments.

While this will lower the cost of borrowing for the United States government, economists worry that a widespread hunkering-down could have broader implications that could slow an economic recovery. If investors remain reluctant to put money into stocks and corporate bonds, that could choke off funds that businesses need to keep financing their day-to-day operations.

Investors accepted the zero percent rate in the government’s auction Tuesday of $30 billion worth of short-term securities that mature in four weeks. Demand was so great even for no return that the government could have sold four times as much.

In addition, for a brief moment, investors were willing to take a small loss for holding another ultra-safe security, the already-issued three-month Treasury bill.

As Barry concludes in a rather understated manner: ‘Quite remarkable.’

I am Jon. Do you think there’s a recession underway, or a full-fledged Depression?

Image 1

Stop Bailing Out The B@st@rds

Cerberus, watercolour by William BlakeImage via WikipediaYeah, The So-Called ‘Big 3’

Below is the (slightly edited) bulk of a comment I posted in response to an article at ClimateProgress.

I should take a moment to apologize to Daniel, who wrote the article. At the end of my comment I called him ‘Joe’… sorry!

Read on….


When will we finally be able to recognize a rip-off when we see/hear it? I agree that the US auto industry needs to be focused on efficiency, reducing the impact on global climate, and everything else Climate Progress stands for.

But to expect, or even have a distant hope, that the industry will attend to those things without being literally FORCED into it, well – that’s some good ganja, man. Read the following quote, and then remember that Chrysler was bailed out soon thereafter. What did we get from that bailout? Squat and grunt, that’s what…

Thanks to Paul, over at Infectious Greed, we can read this:

“Over the past year, the domestic auto industry has experienced sharply reduced sales and profitability, large indefinite layoffs, and increased market penetration by imports … The shift in consumer preferences towards smaller, more fuel-efficient passenger cars and light trucks … appears to be permanent, and the industry will spend massive amounts of money to retool to produce the motor vehicles that the public now wants.

To improve the overall future prospects for the domestic motor vehicle manufacturers, a quality and price competitive motor vehicle must be produced … If this is not accomplished, the long term outlook for the industry is bleak.”


My 1979 Toyota Corolla got better gas mileage than ANY US made car in 2008. For that matter, I still own a 1990 Celica that gets an average of 37 mpg…

Cerberus, who owns a major chunk (51%) of GMAC and 80% of Chrysler today, refused this month to help either company, expecting (probably correctly) that the US govt will fork over the cash. (GMAC was among the top 6 sellers of SUBPRIME SECURITIES in 2006, and is one of only 2 remaining from that top 6 group. The other player still standing? Goldman Sachs.)

So this ‘US Auto Industry Bailout’ is really a BAILOUT of a PRIVATE INVESTMENT FIRM: CERBERUS CAPITAL MANAGEMENT, who have seen their investments go down the tubes this year.

Sorry about the rant Joe, I am just tired of seeing all this cash go to the very guys who created the mess in the first place. The cash should be going to FIX the mess, not reward the guys who started it. Again.

I am Jon, and that is that.

Image 14

$700 Billion Bailout Was Not For US

Economic War?

Below is a really short video from Karl Denninger, which he originally produced early in October, just as we were preparing the huge bailout that Paulson and Bernanke were forcing on us. Takes less than 2 minutes and you will learn alot.

Sold Out By Our Own People

So the entire original bailout was never intended to go to US companies. Hundreds of billions of dollars – all of it to bailout foreign investors.

To be fair, if that word has any meaning in this midst of this mess, the final bill only promised $350 billion would go to the foreign investors, with the other $350 billion going to American companies to ‘free up the credit markets’. (That link will take you another YouTube video by Karl Denninger, showing Neil Kashkari being questioned by Congress. It’s an excellent video showing Kashkari and Paulson and even Senator Issa being caught barefaced in blatant lies.)

I am Jon, and that, as they say, is just the tip of the iceberg.

Image 10